Mark and John are 10-year-old twins who do not get along. They have opened separate lemonade stands and are competing with each other, selling lemonade on their block. Their mother observes that Mark is very good at making lemonade and John is an
excellent young salesman. She suggests they both could make more money if they worked together. John counters that two stands will always make more money than one. Who is right? Why?
The mother makes the point that gains from trade are possible and that the law of comparative advantage should apply. If the two stands operate separately, Mark might make quite a bit of lemonade but be unable to sell it. John might sell all he makes, but this is probably not very much. By working together, the two should be able to sell more lemonade than is possible if they operate two stands independently.
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If price is greater than the average variable cost, a profit-maximizing firm should:
A) contract production until price is equal to marginal cost. B) expand production until price is equal to marginal cost. C) contract production until total revenue is equal to total cost. D) expand production until total revenue is equal to total cost.
The share of the burden of an emissions tax on output borne by the consumer of the polluting output will rise as
a. the tax rises. b. demand elasticity falls. c. demand elasticity rises. d. the tax falls.
According to the BCG Matrix, these products or services exhibit low growth or market share and are often referred to as "cash traps."
Stars Cash Cows Question Marks Dogs
Expansionary fiscal policy will
a. shift the aggregate demand curve to the left. b. shift the aggregate demand curve to the right. c. not shift the aggregate demand curve d. shift the short-run aggregate supply curve to the left.